Perpetual allowed to keep Lehman Brothers settlement secret

Perpetual, trustee for 1000 Australian investors who paid $125 million for synthetic collateralised debt obligations called Mahogany notes, had been asked to provide details of the agreement to the liquidator of Lehman Brothers Australia.

The liquidator, Stephen Parbery, is defending a Federal Court class action by 72 councils, charities and churches that invested in similar notes. The class action members are trying to recover losses of $260 million, some of which relate to a collateralised debt obligations series called Dante.

The Mahogany and Dante notes, which are linked to credit default swaps, were originated by a US arm of the collapsed Lehman group, Lehman Brothers Special Financing Inc.

Justice Steven Rares set aside Mr Parbery's subpoena to Perpetual yesterday, saying the "private and currently confidential nature of the settlement between Perpetual and LBSF suggest that the amount agreed between those parties for the purpose of resolving their dispute, albeit on instruments that are materially similar to those in issue here, will not assist in determining the value of the notes in these proceedings".

Justice Rares said a complicating factor was that in a related English case, rather than settling, Lehman Brothers Special Financing had appealed to the Supreme Court of the United Kingdom. The hearing was this month and judgment is pending.

"This tends to suggest that the evidence of the settlement amount would require a deal of explanation or exploration in order to appreciate its true significance," he said.

There is also a related appeal under way in New York to overturna Bankruptcy Court ruling infavour of Lehman Brothers Special Financing.

Justice Rares said that in order to quantify damages payable in the class action he would have to "determine which of the two foreign courts will govern the ultimate rights of the applicant councils to receive value from the Dante CDOs which they hold".